Gulf Resources Inc (GURE) 2024 Q3 法說會逐字稿

Greetings and welcome to the Gulf Resources third quarter, 2024 earnings conference call.

At this time, all participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Please note this conference is being recorded.

I will now turn the conference over to your host, Helen Chu.

You may begin.

Hi, thank you, operator.

Good morning, ladies and gentlemen and good evening to all of those of you for joining us from China.

And we'd like to welcome all of you to grow resources.

Third quarter, 2024 conference call.

I'm Helen Xu, the art director, our CEO of the company, Mr Xoi Liu is also joining this call today.

I'd like to remind you to all our listeners that in this call, certain management statements during the call will contain for looking information about God, resources, incorporation and its subsidiaries, business and products within the meaning of rule 175 on the Security Act of 1,933 and rule three B dash six under the Security Exchange Act of 1,934 and are subject to the safe harbor created by those rules.

Actual results may differ from those discussed today.

Taking into account a number of risk factors including but not limited to the general economic and business conditions in the PR C.

The risks associated with the pandemic outbreak of future product development and production capabilities, shipments to end customers market acceptance of new and existing products.

Additional competition from existing and the new competition from the Bromine and the other oilfields and the power production, chemicals changing technology, the ability to make future roaming assets and the various other factors beyond its control, alll students are expressly qualified in their entirety by this cautionary statement and the risk factors detailed in the company's reports filed with the SEC.

Our resources assumes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call accordingly.

Our company believes expectations reflecting in those forward-looking statements are reasonable and there can be no assurance of such will prove to be correct.

In addition, any reference to a company's future performance represents the management's estimates as of today, the 20th of November 2024.

For those of you unable to listen to this empirical at this time, a replay will be available at the company's website.

The call is also accessible through the webcast and the link is accessible through our website.

So please locate our press release issued earlier for the details.

I'd like to start out the call by saying that the company regrets that the change in auditors made it difficult to file out our 2023 10 and 2024 10 Qs in a timely matter.

We also regret that we have not had a conference call since the end of the third quarter of last year.

We recognize that we have to be active in communicating with investors and I hope today will be the start of a new discussion between the company and its investors.

In this case, we will focus on the third quarter of 2024 but we are also willing to take questions about the 1st and 2nd quarters as well as the fourth quarter of last year.

I'd like to briefly cover the financial results.

Then I will summarize a few issues of importance before turning the call over to Mr Liu and then we are opening, we will be opening for the QA section.

So since the company filed its 10-Q yesterday for the third quarter to all24 our financials are in the 10-Q file.

So for the three months ended, September 30th 2024 the revenues for the third quarter were approximately 2.2 million.

A decline of 21.8% compared to the same period of last year.

The net loss was approximately $3.5 million and the basic and diluted loss worth 33 per share.

During the third quarter.

The bombing revenues declined by 68% to approximately 1.6 million and crude thought revenue declined by 26% to 605 106 $154,000.

Bombing operation loss was approximately 4.0 million.

While cruise thought operation loss worth $102,000.

The losses from operations from our currently inactive chemical and natural gas business were approximately $339,000 and $39,000 respectively.

For the nine months ended September 30th 2024 the revenues were approximately 5.9 million a decline of 74.4% compared to the same period of 2023.

The losses from operations by segment were as follows.

Browning was approximately $13.5 million cruise thought was approximately $che47 billionmicals was three h $990,000 and natural gas was 140,000.

The net loss was approximately $40.6 million and the basic and dilute loss per share was $2.

78.

We incurred a loss of approximately $29.2 million from the disposition of equipment and purchased approximately 60.5 million worth of new equipment.

Our cash position declined to approximately $11 million from $72.2 million.

As of December, 31st 2023.

The total assets at the end of the quarter was approximately $193.9 million.

There are five major issues we'd like to highlight during this call, the economics of the Bromine business, the purchase of land for CSAT and Broin and our chemical businesses, our natural gas business and the last the cost of our flood prevention project.

Firstly, let's look at our roaming segment to better understand the economics of our roaming segment.

I'm going to focus on the results of the third quarter from year 2022 2023 and 2024.

So during the year 222 the company earned approximately $10.6 million in blooming.

But in year two and 24 we lost $4 million during this period, revenue declined by 92%.

Much of the decline was due to the price of bing which dropped 68% but some was also due to the lower level of tolls produced which declined 75%.

During this period, our utilization dropped from 34% to 8%.

One impact of the lower level of production.

And the decline in utilization was that the cost per ton more than doubled from 2,773 to 5,709.

Because overhead depreciation amortization and other costs had to be allocated over a much lower level of production.

Like oil go or any other element.

Our company has a relatively fixed amount of roaming available for mining in our properties.

When the pandemic hit demand for blooming, especially for ants.

Septics search at the price of roaming declined.

Management decided to limit the sales and protect our mineral assets for the time when prices rebound.

When we made this decision, management recognized that the lower level of production would impact our profits.

However, we believe it would have been a deserved to shareholders to sell more of our branding at extremely low prices.

Since the end of third quarter, farming prices have increased about subs substantially.

We believe we are approaching the time when we will choose to increase production and utilization set.

The issue was about the purchase of land for the Cru Field and blooming in June, the company had an opportunity to secure additional land for Cruso field and B roaming from groups in our production area nearby at the time, we were aware of the existing price of blooming and the impact of that price on the likely earnings we would have in the this quarter easis would believe this was an exceptional opportunity for us to gain control of more land for the production of C&B ROM.

In the future.

Our management team conducted an analysis of all this opportunity and concluded that as acquiring its cruise, Sofield would enable the company to produce most Coolar and Bromine and that the cash we invested was likely to be returned in the next 4 to 5 years.

We also want our shareholders to know that we are still in negotiations with sellers over the timing and the terms of the stock portion of the agreement.

The company wants investors to understand that we would not have made this decision in June if we were not convinced this was oh excellent short term investment that would not jeopardize any of our other opportunities.

Third issue is about our chemical factory while the company made the decision to spend money on the cruise off fields, we also decided to postpone spending money on completing our chemical factory.

We have invested about $45 million out of a projected $69 million in building this new chemical factory.

However, as we studied in the industry, we concluded that the most companies in our niches, currently, some of them are losing money further.

We continue to see interesting new opportunities in areas like zinc bromine and sodium iron factories.

If we were to pursue one of these opportunities, we would modify the configuration of our factories rather than commit capital to a business that does not produce short or intermediate term returns.

We decide to wait until we have better visibility as to the best opportunities.

We're still committed to our risk chemical business.

We are looking at many different alternatives including potential joint ventures and we'll move ahead with chemicals as the market improves.

The study is about our natural gas project.

The company has also refrained from investing money, more money in all these natural gas segments.

We have been working with local authorities and they are finalizing the provincial environmental plan.

During this period.

We have become convinced that we may maximize our returns by strategy such as in natural gas and brought in Sichuan Province by finding the right joint venture partner.

The last issue is about flood prevention.

Flood provision project.

In year 2023 the company spent slightly more than $50 million on flood prevention because the work was conducted in neighboring rivers that were not part of our property.

These investments were expensed instead of capitalized, these expenditures impacted both our earnings and balance sheet.

However, we believe they will barely fit us in the future.

In the past 66 years, the company spent about 47 million in flood repair after the two typhoons as we have previously reported.

Not only did the flood damages our facility, they also impacted our ability to produce from some of our wells.

With this flood prevention project completed, we believe this may help the company to obtain approval to open our bombing factories.

Number two and number 10.

So now let me turn the call over to Mr Liu for some comments.

No, that's one.

Mm the Yin hong she or he is the Ji Hui JIA Hui or the Hua being Zenu but that woman called.

And so the, well, my session is on to that yet.

Yeah, you like that?

We like the gold home Qwh Hui Highland, the Q and huid one year.

So, I mean, you stated that at the beginning of this call, we are very pleased to have our filings which is up to date and look forward to renewed communication with our investors.

The economy of China has been difficult but we see signs that it is beginning to recover when we saw the weakness, we postponed the final delivery of equipment for our chemical business because we did not see a short term path to profitability.

We are continue to explore opportunities for zinc and bromine and sodium iron batteries that could potentially offer much more attractive returns and are considering potential partners in this field.

We also stopped spending money on natural gas while we considered various joint venture opportunities and strategies, we made our investment in acquiring land for crude thought because we believe this investment would produce more strong returns in coming years.

We want our investors to understand that the company are making decisions that are in the best interest for its shareholders.

The company also believes that f provincial project will enable it to produce more bromine Eso and allow the company to open its rest to closed factories.

The company now will position to capitalize if the chinese economy improves as the company believes it will.

Since the end of the last quarter, roaming prices has increased substantially.

We believe that this change will continue and we appreciate the patience of our shareholders and look forward to more active communication in the future.

So, hi Tom operator, can we open for the QA section?

Absolutely, ladies and gentlemen, the floor is now open for questions.

If you would like to ask a question at this time, please press star one on your telephone keypad to join the queue.

You will hear a brief tone to indicate you have successfully joined the queue.

We do ask if listening on speaker phone this morning that you pick up your handset while asking your question to provide optimal sound quality.

Once again, please press star one on your telephone keypad at this time.

If you wish to join the queue to ask a question, please hold a moment while we pull for questions.

And the first question this morning is coming from King Chen King.

Your line is live.

Please go ahead.

Hi, good morning.

I have been an investor for more than 10 years.

And then I still remember a few years ago that when you did the quarterly report, see nice things and seeing confidence, stay with us.

And then in the report, you just stated that you spend millions of dollars in the new field while your revenue and the profit is substantially going downhill.

And then I would like to say, I'd like to hear that how you, what is the reasoning and the color on investing millions of dollars while the revenue and profit is substantially going downhill.

And you said that that investment is going to be returned back to profit or whatever.

But you hope, within four or five years, I'd like you to kind of share some light on that.

What is the reasoning and you know, behind that, so that we would have a better understanding?

Instead of keep saying that we're very hopeful, please stay with us and like what you said a few years ago, but nothing has changed.

That's my question.

Oh, hi.

K.

Can you just be more specific about your question?

Based on my understanding that you are talking about the cruise shop acquisition?

Am I right?

You want to get a more clear explanation why the company expects it will have a good return in coming 4 to 5 years.

This is your question.

Yeah, you keep investing including whatever typhoon reinforcing facility to spend millions of dollars.

You said that is a better prevention.

I mean, while the revenue is going downhill as a businessman, I would not do anything until I see the the upt trend in the market and the and the demand is going up.

That's when I'm going to invest.

But you do that while the revenue is still down, there's no hope of the revenue going up.

And then you say that the we do everything we can to for the benefit of the investors.

I was thinking timing in July of 2024 this year during business hour, I keep calling the number on record about 20 times.

No one answer the phone.

Is this the sign that you do everything for the benefit of the investor?

There's not even a person to answer the phone.

I thought the business is bad.

There is no way for me to sell my share because I have a substantial loss on my investor on my investment.

I'm very upset about this thing.

You know, I keep calling the number on record.

No one on the phone.

Can you answer this question as well?

Thank you.

Okay, thank you.

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Mm.

Okay.

Hi.

So firstly about your question about the phone numbers of the company because it's a, you know, fixed number and in the office sometimes, you know, because people now in China they normally use mobile phone and we cannot make sure every time there is a people sitting there.

But if you want to visit the company, you can make appointment or email me first, then we can visit.

And I think that there is an investor who had been in the factories' company site for twice visited successfully.

There is no doubt on it.

And then about your questions.

Firstly, let's look at the Prelert Protection project, MS Liu had two points.

Firstly, we do this, it's required by the government because based on the government policy, there is a mine mineral restoration policy which means that the companies in my industry due to its mining impacted on the environment and the company site and the surrounding area.

So the company had to do this to do the flood protection project to following the com the government requirements.

Secondly, because this project can help the company to avoid future potential flood damage.

This is about the flood protection project.

Secondly, about the coal acquisition project.

Because for the longterm environmental issue, the government requires the consolidation consolidated production of roaming and cruiser.

So for company currently, we do not have sufficient place for the wasted halogen water to flow to our cruise echo dot So, in order to do the consolidated production, we must have enough fuel for this consolidated protection, consolidated production and for the longterm growth of the company, this is about a ruo project.

So for short term, now if we see the company temporarily at a loss because the low price of rin at the market, the company intentionally controls the production and the selling volume of roaming.

So which temporarily caused the company loss at this moment.

But we think following the chinese economic recovery and the price of raw meat will be increased, then the company will start to increase its production as well.

Economy, the profit will also increase.

Thank you.

Your next question today is coming from okay.

And just as a reminder for the audience, should you wish to ask a question at this time?

You may press star one on your telephone keypad to join the queue.

Once again, that'll be star one on your telephone keypad.

If you wish to join queue at this time to ask a question.

Your next question is coming from John Raws.

John, your line is live.

Please go ahead.

Yes, I have two questions.

The first is, when do you, when do you expect to make decisions about the future of the chemical factory and about the natural gas project, the natural gas was announced 12 years ago.

Virtually every interaction since then has been that we're contemplating having a partner doing it this way, doing it that way.

I wonder when a decision is actually going to be made?

Can you, can you respond to that question?

Okay.

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Mm okay.

Oh hi John.

So here's the response from Mr Leo first.

Look at the chemical segment when it will be making the decision.

It totally depends on the market because the company man management think that when we do a big investment, we have to see the future of this product or this segment.

So long.

Some years ago, when the company started this chemical segment, it was a relocation project.

That time we can see in the market, this project with really good profit and a good future for antibiotics, which raw materials to be used for human and animals.

But the plan was temporary soft because the market for these products and the future is becoming, you know, dramatically decrease.

And if the company start continue with this project, it we may face loss even so, no company is looking for some other products or some other industries this can be transferred to.

So totally depends on the next appropriate product which can meet the market demand and with good future, this is first one, second one about the t the natural gas project.

The major problem is that the company now wanted to get a cooperation with state-owned operations and to in order to better get the government approval on this natural gas mining and trading.

But you know, the state-owned factories live with very low efficient.

Even our management team always frequently they had to fly to Sichuan to be in discussion with this state-owned team, but we cannot confirm when this will happen.

This is our current situation.

Okay.

My second question, it has to do with the Bromine operation.

It's bill quite profitable, high gross margin even at today's prices.

So I don't understand your reasoning about limiting production.

I understand that you might get more for the sales when the price of roaming goes up.

But today you're getting significant losses from this restriction of production and the cash that the company now has is much less than it was in the past.

It seems to me you're flirting with bankruptcy by taking this approach.

Oh, hi John.

Let me just finish all the cash has been invested in things which to this point do not seem to impact your revenue.

So restricting your revenue seems to be a AAA policy that's going to hurt the company in the long run.

Hm.

Okay.

About your first part of this question, I think we explained earlier because the company syc our roaming resources are limited such as oil and the goat.

So in order to get a better, you know, maximize profit, the company intentionally controlled its production at this very low market selling price.

But when the chinese economy start recovering, when growing prices increased, our production will also increase as well.

This will increase the company's revenue in future as well.

When Chinese economy come back recovery.

About your second question, maybe I can translate to Mr Liu.

See what's his comment on it?

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Yeah, but just the sort of so yeah, so will just sort of going for the share with them but I don't want make sure happen.

I appreciate all the detail.

So you do have, you know, quite a hard.

So yeah, I mm.

Haa Chang Qi Shenu.

Okay.

So I here's John, here's Mr Liu's comment and say that this is the you know, nonsense or does not have any related to bankrupt because all these actions, all the money cash we spend are for the longterm growth purpose of the company.

So firstly, if we look at the full project flood protection project, we have to follow China rules because you know, based on China rules, the mining industry have to do this for the mineral restoration.

This was the company's liabilities for so many years, companies are really invol resources but never do this.

So now companies doing this since the government is requiring it to do so, this is a necessary must do action which helped the company build a strong and necessary fundamental position foundation for future growth.

Secondly, the cool thought assets acquisition which secure the company future can produce more with this more you know, crucial field.

So all these two actions to have secured the company to be legally long term production and the growth, all this cash I spend it on this purpose.

Thank you.

Your next question is coming from David Chu David.

Your line is live.

Please go ahead.

Thank you.

I want to ask you spend so much money in improving the foundation or infrastructure of the field, but you have no guarantee to generate increased revenue or sales.

And of course, you cannot control the price as well.

So does the management or the board has any evaluation or done any research on how to secure increased revenue?

That's a question.

Okay.

Hi David.

Because there are two major segments.

The first one is about the flood control project.

This one was based on the government requirements.

We had to do this.

Then the second one is the coolar field acquisition.

So I mean if you like really analysis, you mean the second one or the first one?

Management or the board did any research on the future demand of the product and how are they going to increase it in order to generate more revenue?

Because you spend so much money on the project and if you do not have any plan to generate increased sales and revenue, then those money are pouring into a hole.

Mm okay.

Thank you.

Got it.

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Mm Yes, we did the, as the analysis based on the market and based on the acquisition, we did like how many of our acquisitions, this the company, how many pounds we produce and how it will influence the company's production capability and even based on current low market situation, you know, we did all the analysis on a very conservative perspective and with the profit like we estimated like we before said, which we estimate will get returned in future 4 to 5 years are conservative point of view.

What is the management estimation of this current quarter sales volume.

Current quarter, the current.

Quarter, the fourth quarter that the management comes up with any estimated sales.

The volume, do you mean.

Volume on revenue?

Okay.

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Yeah, we will have an announcement later on for the transparency and fairness to all shareholders.

Thank you as a reminder.

Should anyone wish any further questions?

You may press star one on your keypad at this time.

Once again, if you did wish to join the queue, you may press star one on your telephone keypad at this time and we have a follow up from David Zu David.

Your line is live.

Please go ahead.

Yeah, so the management cannot provide the current quarter estimation.

Does it mean that the management also do not have a full picture on 2025 sales figure and volume?

No.

Hi David.

Because for the transparency and fairness to all our shareholders, this number we can provide for guidance but we cannot only disclose in this conference call.

Why not?

Yeah, we will make an announcement later on in the press release for the guidance.

Okay.

Another question.

Is it possible for the shareholders to visit the factory or the plant?

Yes, of course.

So the company can arrange to have the shareholders go to the factories and visit the factories directly.

Yes, we have shareholders visit, visited the company actually already.

W when is that?

Mm I think twice.

I cannot remember the clearly month as this shareholder as my memory at least twice.

But you have no idea when.

Let me check.

Mm and most recently was the okay.

I think end of last year, beginning of this year.

This is the most recent one.

Okay.

What is the best time to visit the factory?

Okay, I check those David for your milk now to Ta ta in May to your to the National Taiwan.

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Yeah, what is the reply?

What is the best time to visit?

Yes.

Yes.

I'm waiting for Mr Liu to respond rain as well.

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That's the that the so called Canem.

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Mm Yes.

Normally just notify the company or email me in advance, you can visit the company site or field.

Another question concerning the share shareholdings.

I want to know what is the percentage, the management or the birth of directors own the company's shares.

I think you can reference to the company most recently and your general holders meeting proxy being filed on sec website.

I can send you the link if you email me.

You mean under the s filing?

Yes.

And well just, just a follow up, it looks like that they do not have a majority ownership of the company based on the number of shares they have.

Is that correct?

Yes.

Mm I cannot, you know, clearly remember it like you mean who.

Are there any other type of shares that the management own that really control the company or they are just purely like the other shareholders just own ordinary shares and control the company?

Mm As you can reference the filing on the CC website if you need, I can email you the link.

I can't find it in the website.

That's why I'm asking, you know, it sounds pretty strange.

It indicates that the management own a pretty small number of percentage of the shares but they control the company?

Okay.

So there must be some other ownership that the management or board has that.

We do not know.

Mm.

I don't get you because as I see here Mr Yang and his family owns around 18.5% each.

I don't know.

So there's a.

Small percentage, I know that's a small percentage and based on that percentage they can easily be outvoted and kicked out of the management by the majority of the shareholders.

So if they own just less than 20% of the company, but they control the company.

That's really strange.

That's why I'm curious you say under other shares ownership that protect them or help them to control the company or other share or other shareholders on the line and can throw some light on this.

But the company has board of directors and we have annual general meeting as well.

Yeah, I understand.

So I would say the other 80% ownership shareholders didn't do anything to address the company issues.

They just sit there and didn't did, didn't do anything at all and then the minority shareholders do the things.

That's a pretty strange issue.

Any other shareholders on the line?

Comment on this.

Thank you.

We do have another question.

A follow up from King Chin.

Your line is live.

Please go ahead.

Thank you very much.

I consent with the gists opinion on the majority of the owners.

They're, they're not in control of the company from the website it indicated as of December all2,023 the major control people like CEO cffo and the, a few others, they own only approximately 58,000 shares, which is really a fraction of the company of entire holding that the minority, the minority.

And also I want to follow up with my previous questions which were not exactly translated correctly.

I was in China in July and I called during business hours about 20 times.

No answer.

And then Mr Liu, the company CEO said that you can schedule I also in the past year to send email to Helen twice with no answer and with no answer from my email request and then with no answer, anybody's phone call from the company phone record.

How can I as an investor to schedule something to visit or, or, or get any communication at all from the company?

That's my question.

Premium.

I don't know.

When did you send me email?

Because I just not checked on my mailbox.

I did not get any email from you, but there are shareholders which have visited the company site.

You can send me email in advance and arrange your trip to company.

Thank you.

We have reached the end of the Q&A session at this time and we do thank you for your participation.

I'd now like to turn the floor back to Helen Xu for closing remarks.

Oh, hi operator.

Since the time is up.

I think we can close the call for today.

Thank you.

Thank you.

This does conclude today's conference call.

You may disconnect at this time and have a wonderful day.

Thank you for your participation.